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SUPREME COURT
Manila
THIRD DIVISION
THE PHILIPPINE AMERICAN
LIFE AND GENERAL
INSURANCE COMPANY,
Petitioner,
- versus -
Promulgated:
November 24, 2014
x--------------------------------------------------------~-~x
DECISION
Decision
at the time of the sale, to STI Investments, Inc., who emerged as the highest
bidder.3
After the sale was completed and the necessary documentary stamp
and capital gains taxes were paid, Philamlife filed an application for a
certificate authorizing registration/tax clearance with the Bureau of Internal
Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of
the shares. Months later, petitioner was informed that it needed to secure a
BIR ruling in connection with its application due to potential donors tax
liability. In compliance, petitioner, on January 4, 2012, requested a ruling4 to
confirm that the sale was not subject to donors tax, pointing out, in its
request, the following: that the transaction cannot attract donors tax liability
since there was no donative intent and, ergo, no taxable donation, citing BIR
Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares
were sold at their actual fair market value and at arms length; that as long as
the transaction conducted is at arms lengthsuch that a bona fide business
arrangement of the dealings is done in the ordinary course of businessa
sale for less than an adequate consideration is not subject to donors tax; and
that donors tax does not apply to sale of shares sold in an open bidding
process.
On January 4, 2012, however, respondent Commissioner on Internal
Revenue (Commissioner) denied Philamlifes request through BIR Ruling
No. 015-12. As determined by the Commissioner, the selling price of the
shares thus sold was lower than their book value based on the financial
statements of PhilamCare as of the end of 2008.6 As such, the Commisioner
held, donors tax became imposable on the price difference pursuant to Sec.
100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration. Where property, other than real property referred to in Section 24(D), is
transferred for less than an adequate and full consideration in money or
moneys worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of
the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
Id. at 6-7.
Id. at 94-99.
5
The legislative intendment of the deemed gift provision under Section 100 of the Tax Code is to
discourage the parties to a sale from manipulating their selling price in order to save on income taxes. This
is because under the Tax Code, the measurement of gain from a disposition of property merely considers
the amount realized from the sale, which is the selling price minus the basis of the property sold. Hence, if
the parties would declare a lower selling price per document of sale than the actual amount of money which
changed hands, there is foregone revenue and the government is placed at a very disadvantageous
position.
6
Rollo, p. 190.
4
Decision
NIRC, Sec. 99(B): Tax Payable by Donor if Donee is a Stranger. - When the donee or
beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the
purpose of this tax, a stranger, is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
8
It is noteworthy to state that the above provision (Section 100 of the Tax Code) does not
mention of any exempt transaction. The above provision is clear and free from any doubt and/or ambiguity.
Hence, there is no room for interpretation. There is only room for application.
9
Rollo, pp. 91-93.
Decision
Id. at 71-72.
Decision
No. 1125 (RA 1125),11 as amended, which has jurisdiction over the issues
raised. The outright dismissal, so the CA held, is predicated on the postulate
that BIR Ruling No. 015-12 was issued in the exercise of the
Commissioners power to interpret the NIRC and other tax laws.
Consequently, requesting for its review can be categorized as other matters
arising under the NIRC or other laws administered by the BIR, which is
under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally
assailed January 21, 2014 Resolution, maintained its earlier position. Hence,
the instant recourse.
Issues
Stripped to the essentials, the petition raises the following issues in
both procedure and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction; and
2. Whether or not the price difference in petitioners adverted sale of
shares in PhilamCare attracts donors tax.
Procedural Arguments
a. Petitioners contentions
Insisting on the propriety of the interposed CA petition, Philamlife,
while conceding that respondent Commissioner issued BIR Ruling No. 01512 in accordance with her authority to interpret tax laws, argued nonetheless
that such ruling is subject to review by the Secretary of Finance under Sec. 4
of the NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases. The power to interpret the provisions of this Code
and other tax laws shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.
Decision
12
Providing for the Implementing Rules of the First Paragraph of Section 4 of the National
Internal Revenue Code of 1997, Repealing for this Purpose Department Order No. 005-99 and Revenue
Administrative Order No. 1-99.
WHEREAS, Section 4 of Republic Act No. 8424 (the National Internal Revenue Code of 1997,
the NIRC for brevity) vests with the Commissioner of Internal Revenue exclusive and original
jurisdiction to interpret its provisions and other tax laws, subject to review by the Secretary of Finance;
xxxx
WHEREAS, there is a need to further provide for the implementing rules of the first paragraph of
Section 4 of the NIRC.
xxxx
Section 1. Scope of this Order. This Department Order shall apply to all rulings of the Bureau of
Internal Revenue (BIR) that implement the provisions of the NIRC and other tax laws.
Section 2. Validity of Rulings. A ruling by the Commissioner of Internal Revenue shall be
presumed valid until overturned or modified by the Secretary of Finance.
Section 3. Rulings adverse to the taxpayer. A taxpayer who receives an adverse ruling from the
Commissioner of Internal Revenue may, within thirty (30) days from the date of receipt of such ruling, seek
its review by the Secretary of Finance. x x x
13
Sec. 7(a)(6), RA 1125, as amended:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
xxxx
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315 of the Tariff and Customs
Code.
14
G.R. No. 163583, August 20, 2008, 562 SCRA 511.
Decision
b. Respondents contentions
Before the CA, respondents countered petitioners procedural
arguments by claiming that even assuming arguendo that the CTA does not
have jurisdiction over the case, Philamlife, nevertheless, committed a fatal
error when it failed to appeal the Secretary of Finances ruling to the Office
of the President (OP). As made apparent by the rules, the Department of
Finance is not among the agencies and quasi-judicial bodies enumerated
under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are
appealable through a petition for review.15 This is in stark contrast to the
OPs specific mention under the same provision, so respondents pointed out.
To further reinforce their argument, respondents cite the Presidents
power of review emanating from his power of control as enshrined under
Sec. 17 of Article VII of the Constitution, which reads:
Section 17. The President shall have control of all the executive
departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.
15
Section 1. Scope. This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any
quasi-judicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil
Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office
of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board,
Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy
Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under
Republic Act No. 6657, Government Service Insurance System, Employees Compensation Commission,
Agricultural Invention Board, Insurance Commission, Philippine Atomic Energy Commission, Board of
Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law.
16
G.R. No. 155996, June 27, 2012, 675 SCRA 20.
Decision
Decision
Even though the provision suggests that it only covers rulings of the
Commissioner, We hold that it is, nonetheless, sufficient enough to include
appeals from the Secretarys review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation
which does not defeat the very purpose for which they were passed.17 Courts
should not follow the letter of a statute when to do so would depart from the
true intent of the legislature or would otherwise yield conclusions
inconsistent with the purpose of the act.18 This Court has, in many cases
involving the construction of statutes, cautioned against narrowly
interpreting a statute as to defeat the purpose of the legislator, and rejected
the literal interpretation of statutes if to do so would lead to unjust or absurd
results.19
Indeed, to leave undetermined the mode of appeal from the Secretary
of Finance would be an injustice to taxpayers prejudiced by his adverse
rulings. To remedy this situation, We imply from the purpose of RA 1125
and its amendatory laws that the CTA is the proper forum with which to
institute the appeal. This is not, and should not, in any way, be taken as a
derogation of the power of the Office of President but merely as recognition
that matters calling for technical knowledge should be handled by the
agency or quasi-judicial body with specialization over the controversy. As
the specialized quasi-judicial agency mandated to adjudicate tax, customs,
and assessment cases, there can be no other court of appellate jurisdiction
that can decide the issues raised in the CA petition, which involves the tax
treatment of the shares of stocks sold.
Petitioner, though, next invites attention to the ruling in Ursal v. Court
of Tax Appeals20 to argue against granting the CTA jurisdiction by
implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not
grant it blanket authority to decide any and all tax disputes. Defining such
special courts jurisdiction, the Act necessarily limited its authority to
those matters enumerated therein. In line with this idea we recently
approved said courts order rejecting an appeal to it by Lopez & Sons
from the decision of the Collector of Customs, because in our opinion its
jurisdiction extended only to a review of the decisions of
the Commissioner of Customs, as provided by the statute and not to
decisions of the Collector of Customs. (Lopez & Sons vs. The Court of
Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
xxxx
17
Municipality of Nueva Era, Ilocos Norte v. Municipality of Marcos, Ilocos Norte, G.R. No.
169435, February 27, 2008, 547 SCRA 71.
18
Torres v. Limjap, 56 Phil. 141 (1931); citing Vol. II Sutherland, Statutory Construction, pp.
693-695.
19
The Secretary of Justice v. Koruga, G.R. No. 166199, April 24, 2009, 582 SCRA 513.
20
101 Phil. 209 (1957).
Decision
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26
SEC. 246. Non- Retroactivity of Rulings. - Any revoc.ition, modification or reversal of any of
the rules and regulations promulgated in accordance with the pr/ceding Sections or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Jnternal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
( c) Where the taxpayer acted in bad faith.
Decision
15
WE CONCUR:
~i&ILLAg
JOSEC
Associate Justice
ATTESTATION
:.
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.